Tesla 2019 Proxy Vote Guide

Tesla 2019 annual meeting is June 11. Enhance long-term value. Vote AGAINST Ehrenpreis, Omnibus Stock Plan, Auditor. Vote FOR all other items. 

Tesla, Inc. (TSLA) designs, develops, manufactures, and sells electric vehicles, and energy generation and storage systems in the United States, China, Netherlands, Norway, and internationally. Most shareholders do not vote.  Reading through 112+ pages of the proxy takes too much time. Your vote could be crucial. Below, how I voted and why.

If you have read these posts related to my portfolio and proxy proposals for the last 24 years and trust my judgment, skip the 8 minute read. See how I voted in my ballot. Voting will take you only a minute or two. Every vote counts.

I voted with the Board’s recommendations 37% of the time. View Proxy Statement via SEC’s EDGAR system (look for DEF 14A).

Read Warnings below. What follows are my recommendations on how to vote the proxy in order to enhance corporate governance and long-term value.

Tesla 2019: ISS & Sustainalytics Ratings

From the Yahoo Finance profile: Tesla, Inc.’s ISS Governance QualityScore as of April 1, 2019 is 9. The pillar scores are Audit: 10; Board: 9; Shareholder Rights: 6; Compensation: 9.

No Say on Pay vote but Tesla’s Summary Compensation Table shows the highest paid named executive officer (NEO) was CEO Elon Musk at $2.3B. I’m using Yahoo! Finance to determine market cap ($33.0B) and I define large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Tesla is a large-cap company.
According to the Equilar Top 25 Executive Compensation Survey 2015, the median CEO compensation at large-cap corporations was $10.3M in 2014. Tesla shares underperformed the NASDAQ over the most recent one, two, and five year time periods. The ratio of the annual total compensation of the CEO to the median of the annual total compensation of all employees was 40,668 to 1.

2. Approve Omnibus Stock Plan

The plan’s dilution exceeds 10 percent. Based on evaluation of the estimated cost, plan features, and grant practices using the Equity Plan Scorecard (EPSC), a vote Against this proposal is warranted:

• The equity program is estimated to be excessively dilutive (overriding factor);
• Plan cost is excessive;
• Three-year average burn rate is excessive; and
• The plan allows broad discretion to accelerate vesting.

Vote AGAINST

3. Approve Qualified Employee Stock Purchase Plan

A vote For this proposal is warranted:

• The purchase price is reasonable;
• The number of shares reserved is reasonable;
• The offering period is within the limits prescribed by Section 423 of the Internal Revenue Code.

Vote FOR

4. Eliminate Supermajority Vote Requirement

A vote FOR this proposal is warranted given that the reduction in the supermajority vote requirement would enhance shareholder rights and is this management proposal is the direct result of my proposal on the same topic (#8).

5. Amend Certificate of Incorporation to Reduce Director Terms

A vote FOR this proposal is warranted. The reduction from a three-class to a two-class board structure will represent an improvement in board accountability to shareholders. This good governance proposal is a direct result of my proposal from 2017 on the same topic that passed with 30.5%, a large majority of unaffiliated shares (almost 1/3 of shares were held by insiders who opposed the measure).

As noted by Egan-Jones, “staggered terms for directors increase the difficulty for shareholders of making fundamental changes to the composition and behavior of a board.” This till leaves staggered terms but two year terms are an improvement over three year terms.

Vote: FOR

6. Ratification of Independent Auditor

I have no reason to believe the auditor engaged in poor accounting practices or has a conflict of interest. Egan-Jones recommends voting against the auditor if they served for seven years. Independence becomes compromised by that time. PricewaterhouseCoopers LLP has served more than seven years. No other issues appear significant.

Vote AGAINST.

Tesla 2019 Proxy Voting Guide: Shareholder Proposals

Vote: FOR

Addendum: Post Meeting

Tesla 2020: Issues for Future Proposals

Looking at SharkRepellent.net for anti-shareholder provisions:

• Classified board with staggered terms.
• No action can be taken without a meeting by written consent
• Shareholders cannot call special meetings.
• Supermajority vote requirement (66.67%) to amend certain charter and certain bylaw provisions.

Tesla 2020: Mark Your Calendar

For inclusion in Tesla’s proxy materials—Stockholders may present proper proposals for inclusion in Tesla’s proxy statement and for consideration at the next annual meeting of stockholders by submitting their proposals in writing to Tesla’s Corporate Secretary [at our principal executive offices at 3500 Deer Creek Road, Palo Alto, CA 94304] in a timely manner. In order to be included in the proxy statement for the 2020 annual meeting of stockholders, stockholder proposals must be received by Tesla’s Corporate Secretary no later than January 1, 2020, and must otherwise comply with the requirements of Rule 14a-8 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Warnings

Be sure to vote each item on the proxy. Any items left blank are voted in favor of management’s recommendations. (See Broken Windows & Proxy Vote Rigging – Both Invite More Serious Crime). I generally vote against pay packages where NEOs were paid above median in the previous year but make exceptions if warranted. According to Bebchuk, Lucian A. and Grinstein, Yaniv (The Growth of Executive Pay), aggregate compensation by public companies to NEOs increased from 5 percent of earnings in 1993-1995 to about 10 percent in 2001-2003.

Few firms admit to having average executives. They generally set compensation at above average for their “peer group,” chosen by aspiration. While the “Lake Woebegone effect” may be nice in fictional towns, “where all the children are above average,” it doesn’t work well for society to have all CEOs considered above average, with their collective pay spiraling out of control. We need to slow the pace of money going to the 1% if our economy is not to become third world. The rationale for peer group benchmarking is a mythological market for CEOs. For more on the subject, see CEO Pay Machine Destroying America.